• World

Your Kids’ Financial Education Should Start Much Earlier Than You Think

4 minute read

By the age of 3, children should know how to take turns, walk up stairs and get dressed without help, developmental experts say. They should also be prepping for retirement.

Wait. What? Doesn’t this take financial planning to absurd lengths? No–it only seems that way. With American pension systems in a lasting state of erosion, there is no such thing as starting too early. Consider that an extra 10 years of portfolio growth can mean the difference between a nest egg of $1 million and one of $2 million at age 70.

Not that anyone expects a child to think in such terms. Yet age 3 is when executive-function skills–like the ability to control impulses and parse information–enter rapid development, according to research from the Consumer Financial Protection Bureau (CFPB) in its annual financial-literacy report, released in October. By fostering these skills at an early age, parents just may put their kids on a glide path to long-term financial security. “We’re not going to teach a 3-year-old efficient portfolio management,” says Ted Beck, CEO of the National Endowment for Financial Education. “But this is not too young to talk about smart choices.” These discussions lay the groundwork for wiser saving and spending decisions far into the future, Beck says.

This year the JumpStart Coalition for Personal Financial Literacy, a nonprofit, updated its widely accepted objectives for school-based financial education–and for the first time it included benchmarks for kindergartners. Kids at this stage should know that a fair trade benefits both parties, different tasks have different rewards, and a need is different from a want. The White House has an educational website with similar benchmarks for preschoolers.

If it seems as if we’re asking a lot of our toddlers, it’s because the stakes are high. Last year results from the Program for International Student Assessment showed that the average 15-year-old in the U.S. ranks in the middle of the pack among youths from 18 developed nations in terms of financial ability, below those in Poland and Latvia. And in November, an assessment from the Global Financial Literacy Excellence Center (GFLEC) at George Washington University confirmed American mediocrity: adults in the U.S. rank 14th among 143 nations. Don’t be fooled. The vast majority are underdeveloped economies like Somalia and Angola. Developed nations such as Denmark, Canada and Germany leave the U.S. in the dust.

Adding a sense of urgency, a new report from the Council for Economic Education next year is expected to show almost no progress in the number of high schools requiring a course in economics or personal finance. Research from the University of Wisconsin shows that young adults who were required to take a personal-finance course in high school had higher credit scores and fewer missed payments. “You don’t become financially literate by breathing the air,” argues Annamaria Lusardi, academic director at GFLEC. Countries at the top of the heap in the center’s study have strong educational systems that in many cases stress math, she says.

Some experts believe setting the young on a better financial path would also shorten recessions and help mitigate income inequality. More than 1 in 3 workers spend three or more hours a week at work stressed about their finances. “That’s a lot of lost productivity,” says Gail Hillebrand, associate director of consumer education and engagement at the CFPB. Nan Morrison, CEO of the Council for Economic Education, points to the “double whammy” that youth from low- and moderate-income families face. They struggle the most with student debt and tend to shy away from courses that lead to the best-paying jobs. “Personal finance is an important lever to help in these areas,” Morrison says.

Giving your kid a head start isn’t as daunting as you may believe. At moneyasyougrow.org, the White House’s advice site, leading research has been condensed into simple lessons. When children are ages 3 to 5, parents should reinforce four financial concepts: you need money to buy things; you earn money by working; you may have to wait to buy something you want; and there is a difference between things you want and things you need.

Consider easy base-building conversations with kids about how playing with a friend is free but video games cost money, how people they encounter like bus drivers and painters are at work, why you make choices while shopping and why it is worth it to wait, if they must, for a turn on the swing. Baby steps, for sure, but vital ones.

More Must-Reads from TIME

Contact us at letters@time.com